Comcast Proposes Merger With Disney

Comcast, the nation's largest cable television operator, has offered to buy the Walt Disney Company, in a surprise bid worth $66 billion the entertainment giant's board said it would "carefully evaluate."

Comcast President and CEO Brian Roberts said today the company was going public with the unsolicited offer after Disney Chairman and CEO Michael Eisner declined to enter discussions.

The proposed merger includes stock valued at $54 billion and assumed debt of $11.9 billion.

Disney confirmed the offer. "The Walt Disney Company Board of Directors has received and will carefully evaluate the unsolicited proposal from Comcast Corp," the company said in a statement released today.

At a Disney investor conference in Orlando, Fla., Eisner acknowledged the offer, but went no further than the board of directors did.

"We did get an unsolicited offer today, which the board of directors of the Walt Disney Company will take under advisement, carefully consider and in due course have a response," Eisner said.

"The ball is in Disney's court," Comcast's Roberts said today. "I don't feel that there's anything to be bashful about. We think it's a very fair proposal. I hope the board will consider it."

Government Scrutiny Promised

If the two giant companies were to merge, it would combine the largest cable service provider — with 21 million subscribers — with Disney's theme parks, movies, ABC television and radio networks and the ESPN cable television network. Comcast is also a major player in high-speed Internet service, serving more than 5 million subscribers.

Comcast, which has grown rapidly in the past decade, including with a merger with AT&T Broadband in late 2002, calls the offer a wonderful opportunity to combine distribution — which Comcast has plenty of — and content, in which Disney is rich.

"This is a pretty compelling combination," Roberts said.

But amid questions of how the merger might affect consumers, Federal Communications Commission chairman Michael Powell, testifying before a Senate panel on an unrelated issue today, said his agency would be watching developments with the proposal closely.

"I don't know if Comcast will get Disney or not," he said. "If it does, a merger of that magnitude will unquestionably go through the finest filter at the commission I can assure you that's possible."

Eisner Under Pressure

The proposal comes as Eisner resists pressure from former board members Roy E. Disney, the nephew of Disney founder Walt Disney, and Stanley E. Gold, who have criticized his performance and his failure to establish a succession plan as Disney's chief executive.

Among the criticisms was that Eisner allowed the collapse of talks with animation studio Pixar to continue the relationship responsible for such Disney hit movies as Finding Nemo. The collapse of those talks increased the pressure on Eisner to defend his strategy for the company.

Gold said he took Comcast's bid as "validation" of the criticism he and Roy Disney have leveled at Eisner.

"We could not have asked a greater validation than the presentation Comcast gave this morning," Gold said today in a conference call. "What I would say is their presentation is a validation of the kinds of things we've been saying."

Comcast President Steve Burke, a former Disney executive, today identified animation as a key issue to be addressed and said if the merger went through, the new giant would reach out to companies like Pixar. Comcast wants to "do everything we can to empower the existing [Disney] animation group," he said.

Burke also said there would be savings of $300 million to $400 million by eliminating overlapping elements in the two companies. "This would not affect the vast majority of employees," he added.

In announcing its bid, Comcast also released a letter Roberts sent to Eisner after the Disney chief refused to discuss the offer.

"Given this, the only way for us to proceed is to make a public proposal directly to you and your board," Roberts' letter said.

Comcast proposed to issue 0.78 of a share for each share of Disney stock, providing Disney shareholders with a premium of more than $5 billion, based on stock prices as of closing Tuesday.

Under the proposal, Disney shareholders would hold 42 percent of the combined company.

Disney's stock jumped 14.62 percent to close today at $27.60. Comcast stock dropped 8.62 percent to close at $30.10.

David Miller, an analyst who covers Disney and other media companies for Sanders, Miller and Harris in Los Angeles, said the jump in Disney stock will force Comcast to increase the price.

"We think this is a lowball bid," Miller said. "Comcast is only offering a 9.9 percent premium over the Tuesday close. Disney is already trading higher than that today. Wall Street is telling Comcast they will have to up the offer. Shareholders will want more for their shares."

He said it is not uncommon for a company making a hostile bid to have to come back with several offers if the board rejects the initial offer.

But he also said that in terms of what the two companies do, the deal could be advantageous for both sides if it went through.

"Strategically this makes perfect sense for a studio operator to merge with a cable distributor," he said. "It is about content merging with distribution. There is not much overlap, which is good for employees."

At the same time, Comcast will have to make its case for managing such a diverse company, said Tom Wolzien, a media analyst with Sanford C. Bernstein. "They don't really have a record at all of running a conglomerate like a Disney or a Viacom or a Time Warner ... the jury is out on whether they can do it or not."

Analysts: ‘Perfect Merger Partners’

Roberts pointed to Comcast's merger last November with AT&T Broadband — as well as the success of News Corp.'s merger with DirecTV and the merger of CBS and Viacom — as an example of how the proposal could be beneficial for Disney.

"Our management team has a proven track record of successful integration of our merger partners," Roberts said.

Analysts took a positive view of the proposed deal, saying it would create a media powerhouse that would be a strong competitor with media rivals News Corp. and Time Warner.

"We regard Comcast and Disney as perfect merger partners," said Merrill Lynch analyst Jessica Reif Cohen. "Comcast's long history of deal execution has been completely extraordinary in terms of shareholder value creation.

"The rationale behind the merger is identical to the News Corp.-DirecTV combination, which is a combination of content and technology," she said. "In this case, Comcast's broadband technology is superior to satellite, creating even more opportunities."

Jeffrey Rayport, chairman of the business consulting firm Marketspace LLC in Cambridge, Mass., said if the deal is done, it would create an entertainment giant.

"This deal is huge potentially in the sense that it takes a major broadcast network, ABC, it links it up with the No. 1 cable provider in the United States, and Comcast of course with the recent combination with AT&T Broadband now has the better part of 25 million homes in the United States," he said.

"It's another bet that when you bring the world's richest collection — or one of the world's richest collections — of content together with one of the world's most robust platforms for distribution that you've got the chance to dominate the media world in a unique way," Rayport said.

Would Tie-Up Benefit Consumers, or Harm Them?

Some analysts predicted that if the deal went through, it could result in lower rates for cable television subscribers, though one company would control both a good deal of the content available and how it is delivered.

"That's going to change the dynamics of what we see and how much we pay for it, and I think for the most part for the better," said Adam Theer, director of communications studies at the Cato Institute in Washington.

The Consumer Union, though, said the proposed merger could be trouble for the public.

"If this deal goes through it tightens the ownership grip over the most important sources of news, information and entertainment in our country," said Gene Kimmelman, senior public policy director for Consumers Union, which publishes Consumer Reports. "Disney has an enormous package of extremely popular, marquee programming and a national network that would now be owned by the largest cable distributor in the country which has little to no competition in most communities. The potential impact is enormous."

Mark Cooper, of the Consumer Federation of America, said the Comcast bid for Disney is "inevitable," calling it the result of the "policy this [Bush] administration has pursued … to reward really huge, vertically-integrated companies. … There's less and less competition, and virtually no chance anyone else can get into it, with fewer people controlling what the public can see."

As examples of how the public can be hurt by fewer and fewer companies having control of media, Cooper cited Comcast's rejection of an anti-war ad from the Princeton, N.J., based Antiwar Video Fund around the Bush State of the Union address, and CBS's refusal to sell time during the Superbowl to Move.org to run its "child labor" ad slamming the Bush deficit.

Disney released its quarterly earnings report today, listing first quarter revenue at $8.55 billion, compared to $7.1 billion a year ago, and profts at 33 cents, versus 5 cents for the same period last year. Both figures were above the company's estimates.

Comcast today reported a profit of $383 million, or 17 cents per share, for the quarter ending Dec. 31. The company credited the strong demand for its digital cable and high-speed Internet services. Revenues jumped 58 percent to $4.74 billion.